Oil Prices Insulated from Arab Region Instability

Source: Wall Street Journal 5/22/2012, Location: Middle East

Oil prices won't be significantly affected by any supply disruptions in the Middle East and North Africa because of sufficient spare capacity from Arab oil producers, Imad Nassif Makki, senior refining expert for Organization of Arab Petroleum Exporting Countries, said at the Global Refining Summit in Barcelona.

"Despite the importance of the Arab region, political instability has a limited impact on oil price and supply to international markets," Makki said.

Political turmoil in parts of the Arab region, which sits on 58% of the world's proven oil reserves, and fears of disruption to Iranian supply have caused jitters in oil markets. Even though members of the Organization of Petroleum Exporting Countries are pumping oil at levels not seen since the 2008 recession in anticipation of any production losses from the region, oil prices have stayed persistently high.

A European Union embargo on Iranian crude imports and U.S. sanctions on countries that deal with Iran's central bank could take between 800,000 and 1 million barrels a day of Iranian oil off the market by July, according to the International Energy Agency.

Iran has also threatened to close the Strait of Hormuz, a narrow corridor through which one-third of the world's sea-borne oil exports pass.

However, Makki said increasing spare capacity in Kuwait, United Arab Emirates and Saudi Arabia would compensate for any shortfall in oil in the region, thereby protecting prices from big moves.

He also said investment in new refining capacity was important for securing the continuation of oil products supplies and stable oil prices. In the long term, investment in refineries in Arab countries will rise as clean fuel projects gain traction. In the short term, however, investment would likely see delays, he said.

Nakki added that collaboration between Arab national oil companies and oil companies in other regions, such as the joint-owned Saudi Aramco Total Refining and Petrochemical Company, allowed companies to share the risks. Saudi Aramco owns 62.5% of the company and Total (TOT) owns and 37.5%.